For military veterans, the VA loan is a significant benefit. Established by the Department of Veterans Affairs, VA loans offer unique advantages that make homeownership more accessible for those who have served. One of the most significant benefits of VA loans is that they typically require no down payment, allowing veterans to buy a home without having to save a large sum of money upfront. VA loans also offer lower interest rates compared to conventional loans, resulting in substantial savings over the life of the loan. Unlike conventional loans, VA loans do not require private mortgage insurance (PMI), even if you put down less than 20%, which can save you hundreds of dollars per month.
VA loans have more lenient credit score requirements. While lenders typically look for a credit score of at least 620, veterans with lower scores might still qualify based on other factors. The VA also limits the amount veterans can be charged for closing costs, and sellers are allowed to pay closing costs, making it even more affordable for veterans to buy a home. Additionally, VA loans do not have prepayment penalties, allowing you to pay off your loan early without incurring additional fees. Another advantage is that VA loans are assumable, meaning if you sell your home, the buyer can take over your loan, which can be a significant selling point, especially if your loan has a low-interest rate. The downside of letting someone assume your VA loan is that you can only have one active VA loan at a time.
To qualify for a VA loan, you must meet specific eligibility criteria. Veterans, active-duty service members, National Guard members, and Reservists may be eligible, typically requiring 90 consecutive days of active service during wartime, 181 days of active service during peacetime, more than six years of service in the National Guard or Reserves, or 90 days of service under Title 32, with at least 30 of those days being consecutive. You must obtain a Certificate of Eligibility (COE) from the VA, which verifies your eligibility based on your military service. This document can be obtained through the VA's portal, through your lender, or by mail using VA Form 26-1880.
The VA loan process begins with prequalification with a VA-approved lender, providing basic information about your income, credit, and employment to get an estimate of how much you can borrow. Next, you need to obtain your COE, which your lender can often help you obtain quickly. Work with a real estate agent to find a home that meets your needs and budget, ensuring the property is eligible for VA financing. Once you find a home, you'll sign a purchase agreement, including a VA Option Clause, allowing you to back out of the deal without penalty if the home doesn’t appraise at the purchase price.
The VA will conduct an appraisal to ensure the home meets minimum property requirements and is worth the asking price. This appraisal is not as detailed as a home inspection, so you should still consider hiring a professional home inspector. The lender will then review your financial information and the appraisal report to ensure everything is in order, potentially asking for additional information during this process. Once the loan is approved, you’ll go to closing, where you’ll sign the final documents and take ownership of the home, paying any closing costs at this time, although the VA limits the types and amounts of fees you can be charged.
The VA Funding Fee is a one-time fee required by law to keep the loan program running. The fee varies based on the type of loan and your service history but is typically between 1.4% and 3.6% of the loan amount. This fee can be financed into the loan, reducing your out-of-pocket expenses. Veterans with a service-connected disability are exempt from this fee. The VA uses residual income guidelines to ensure that veterans have enough money left over after paying their mortgage and other obligations, helping to ensure you can afford the loan and maintain a good quality of life.
The VA offers two primary refinancing options: the Interest Rate Reduction Refinance Loan (IRRRL), also known as a VA Streamline Refinance, which allows you to refinance your existing VA loan to a lower interest rate with minimal documentation and no appraisal in most cases, and the Cash-Out Refinance, which allows you to take cash out of your home’s equity, whether you have an existing VA loan or not, for home improvements, debt consolidation, or other financial needs. VA loans can also be used with a non-spouse co-borrower, including another veteran or a civilian, with the VA guaranteeing only the veteran’s portion of the loan, so the other borrower must meet the lender's requirements.
To make the most of a VA loan, choose a VA-savvy real estate agent who has experience with VA transactions and understands the specific requirements and benefits of VA loans. Understand your entitlement, which your COE will show your entitlement amounts, allowing you to buy a home with a loan up to $647,200 in Anne Arundel County, MD, (more in higher priced markets) without a down payment. By leveraging the benefits of a VA loan, you can make homeownership a reality while minimizing your financial burden. Whether you're buying your first home or relocating due to PCS orders, a VA loan can provide the flexibility and support you need to secure a home for you and your family.